Written by Joseph Russo in December, 2009

A superannuation salary sacrifice arrangement works by reducing your gross salary in return for your employer making additional contributions to superannuation on your behalf.

The salary sacrificed amount of superannuation together with superannuation guarantee contributions by the employer form part of the concessional contributions to the fund.

From 1 July 2009, the cap on concessional superannuation contributions (includes salary sacrifice contributions, 9% superannuation guarantee contributions, any other employer contributions or any contributions where a tax deduction is received) has decreased to:

• $25,000 for people aged under 50

• $50,000 for people aged 50 and over

Should you have more than one superannuation fund, all concessional contributions made to all funds are added together for purposes of the cap. Please note this also includes insurance written under your superannuation. If you make super contributions through a salary sacrifice agreement, these contributions are taxed in the super fund at a maximum rate of 15%. However, additional tax will be payable if your contributions exceed the relevant cap amount.

Benefits of salary sacrificing:

• Effective way to build up your superfund balance prior to retirement.

• For those over 55 and still working, effective strategy to gain access to their superfund via a transition to retirement pension.

• Reduces your assessable income – sacrificed amount is not subject to pay as you go withholding.